For independent pet stores, simultaneously competing against Petco and Chewy can feel like being stuck between a rock and a hard place. While each was already a formidable competitor going into FY2020, over the past couple years, we've seen both reach new levels of dangerous as access to overwhelming resources, key strategic decisions and a worldwide pandemic have converged. 

But which one of these titans of pet retailing represents a bigger threat to independents? To figure that out, let's start by taking a look at some of the key financial metrics from both retailers FY2020 annual reports...

 PETCOCHEWY

Net Sales:

Sales Growth YOY:

Gross Profit:

Adjusted EBITDA:

Net Loss:

Active Customers:

$4.920 billion 

+11%

$2.107 billion

$484.3 million

($31.7 million)

>20 million

$7.146 billion

+47%

$1.821 billion

$85.2 million

($92.5 million)

19.2 million

As you can see, there are clear strengths on display for both retailers. While Chewy experienced stronger sales growth and reached a level that outpaced Petco's net sales by more than 45 percent, Petco still achieved a higher gross profit and adjusted EBITDA. In addition, Chewy's bottom line experienced a net loss that was nearly triple that of Petco's.

Still, these figures only tell part of the story. To gain more insight about the two retailers' competitive strengths, we have to look a little deeper for numbers that may be more timely and/or not as simple to compare. For example, while Chewy experienced a net loss of $92.5 million in FY2020, it actually achieved profitability in Q4 with a net income of $21 million for the quarter. That represents a big step forward for a company that had not previously turned a profit.

On the other side of the equation, Petco's revenue growth escalated throughout the year, going from +1 percent in the first quarter to +16 percent in the fourth quarter. Also important to mention is that Petco strengthened e-commerce business significantly over the past year. In fact, the company more than doubled its digital sales over that period, proving (at least to some extent) that it can complete against a pure e-commerce player like Chewy on its own turf.

With all that said, it's time to answer the question: Is it Petco or Chewy that's a bigger competitive threat to independent pet stores? 

Unfortunately, there just isn't a simple answer. While Chewy is clearly a bigger short-term threat simply by the merit of its formidable market share, the rate of growth the e-commerce retailer has experienced is simply unsustainable, particularly with the always-dangerous Amazon lurking in the background.

Over the long term, Petco is showing clear signs that it can eventually eclipse Chewy as a competitor by building on the growth of its e-commerce business while strengthening its physical stores by adding veterinary services and continuing to attract former indy-exclusive brands with its budding reputation as "The Health & Wellness Co."

At the end of the day, anyone who sleeps on either one of these dangerous competitors does so at their own peril.